Intelsat “cash windfall” from C-band reworking

Intelsat’s proposal (with SES and Eutelsat) to see some of its C-band frequencies re-worked over the US to help propel 5G cellular growth has rarely been out of the news. A report from equity analysts at investment bank Jefferies is extremely positive.

No doubt coincidentally, Intelsat on September 5th announced that they would be raising up to $2.25 billion of new debt via a tender offer, due for repayment in 2024, which will largely be used to repay existing obligations due 2020.

Jefferies also say that Intelsat and SES are both looking to clear an additional slice of their spectrum (beyond the initial suggestion of 100 MHz) in their amended joint proposal, and with Intelsat’s CFO confirming that an initial $1-$2 billion will be funded to clear the existing spectrum, and more for the extra slice of bandwidth.

The bank’s note says: “Not surprisingly, the [Intelsat] CFO didn’t disclose what the figure could be (our published view is that 200 MHz will be brought forward). We’d further highlight: the Consortium has engaged with interested parties already and has no constraints that could prevent it from announcing a spectrum access agreement ahead of an FCC Order; the Consortium will not fund the cost to clear – it will come out of up-front cash held in escrow; management sees the wider industrial policy implications as comfortably trumping and “bad PR” of a windfall; Intelsat should be able to offset its c.$9bn of tax losses against any income / capital windfall; the Consortium agreement is in the final stages of drafting / negotiation.”

“The first 100 MHz could yet require a new satellite (albeit it, a very cheap one, sub-$200m); while it is the broadcaster that is impacted by the Joint Proposal, the downlink antennas that actually needed to be touched are owned by the cable operators – this bifurcation talks to the fact that [] Intelsat / SES are positioned to effectively execute the changes need to clear the spectrum; CFO reiterated that to vacate the spectrum, the ground segment costs are a new filter (the cost measured in low-single digit $’000s) and a truck roll – the cable operator will undertake the truck roll (operators won’t want a third party tinkering with their head-ends) and the Consortium will reimburse.”

Jefferies have rated Intelsat as “Buy” with a target price of $32. Intelsat’s stock price on Sept 5th was about $21.53.